Welcome to a new week here on the Retirement Quick Tips podcast. I’m your host Ashley Micciche, co-owner of True North Retirement Advisors, an independent financial advisory practice managing $340 million in client assets. I’m a Chartered Retirement Planning Counselor, and I started this podcast because I love helping people just like you gain clarity and make a plan for the retirement you envision. 

The theme this week on the podcast is: Recession Coming in 2022?

Originally this week, I was going to talk about whether or not its better to save more in the years leading up to retirement, or focus on paying down your debts. That’s a topic I’ll come back to on a future week, because as I sat down to get ready to write my talking points for this week’s episodes, new data emerged showing inflation is getting worse, now at 7.5%. The stock market has taken a beating, with the S&P 500 down over 7% for the year as I record this episode. The Dow is faring better - down about 4% this year - but that’s because the Dow is made up of a higher concentration of high quality, solid stocks, and as recession fears grow, there’s a flight to quality and investors prefer companies with strong balance sheets, lots of cash, which is more characteristic of companies in the Dow.

The Fed is going to have to raise interest rates this year to bring inflation in check, and it seems increasingly likely that with the economy on shaky ground already, that higher interest rates might be the straw that broke the camel’s back and send our economy into a recession. 

So this week, I’m going to talk about how you can protect your portfolio and your retirement if we have a recession in 2022.

I’ll talk about how you can shore up your investment portfolio, how much cash you should have on hand, and why a plan B is critical if we do slip into a recession this year. 

As I’ve mentioned before, it’s important to invest and make financial decisions based on probabilities, not possibilities. And even if we sidestep a recession this year, we’re still going to have a recession at some point in the next few years, so these are all steps you can take now to protect yourself even if I’m wrong about the direction of the economy. 

I hope what I have to share with you this week will help you make smart and thoughtful decisions with your retirement. And while I am careful to not lead you astray, personal finance is not an exact science. There is no one-size-fits-all solution for everyone, so I encourage you to disregard anything I say that may not be helpful for you, and to consult your own financial, tax, and legal advisors regarding your own individual situation. 

That’s it for today. Thanks for listening! My name is Ashley Micciche...and this is the Retirement Quick Tips podcast.

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week the theme was: The new 3.3% rule for retirement

In case you missed any episodes, here’s what we covered this week:

• The 4% Rule Explained
• Why Did the 4% Rule Change To 3.3%?
• The Gloomy Outlook That’s Driving The 3.3% Rule
• 4 Reasons Why The 4% Rule Still Works
• Why You Shouldn’t Fret Too Much About The 4% or 3.3% Rule

The most important takeaway from this week is that while guidelines like the 4% rule or the revised 3.3% rule can be helpful in determining a safe withdrawal rate for retirement, these rules use a number of assumptions that could be wildly inaccurate over a 30 year retirement. So no matter which withdrawal rate you use in retirement, the key is to remain flexible with your spending and withdrawals to account for the actual changing market and economic conditions as well as natural fluctuations in your spending needs. 

Tomorrow, come on back, because we’re starting a brand new theme: Save More or Pay Off Debt Before Retirement. As you approach retirement, would it be better to save more or focus on eliminating your debts before retirement? I’ll explore this important topic next week. 

Thank you so much for listening this week! If this podcast is valuable for you, please share the show with a friend, a neighbor, your brother, or co-worker who is getting close to retirement. Just go to your favorite podcasting app, hit the share icon, then text or email the show link to someone you know who is eyeing retirement. 

Thanks for sharing the love and spreading the word. I hope you have a blessed Sunday. My name is Ashley Micciche, this is the Retirement Quick Tips Podcast.

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>>> Subscribe on Apple Podcasts: https://apple.co/2DI2LSP

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>>> Visit the podcast page: https://truenorthra.com/podcast/ 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: The New 3.3% Rule For Retirement

Today, I’m talking about Why You Shouldn’t Fret Too Much About The 4% or 3.3% Rule.

If you like structure, rules, and you’re legalistic about things like I am, then the 4% rule or the 3.3% rule is comforting because you can determine an appropriate withdrawal rate for retirement based on well-documented research. 

But I urge you not to get too strict about adhering to a 4% or a 3.3% rule in retirement, because the real key to success in not running out of money in retirement is flexibility. 

You should hold more cash in retirement so you can stop your portfolio withdrawals during a stock market downturn, or you can pay cash to fix your leaky roof, rather than taking on debt. 

What are you going to do in 5 years when you need to buy a new car, but you’re not willing to spend more than 4% of your portfolio to buy the car, on top of your other withdrawals? It could drive you to finance the car instead, which may or may not be the best decision for you in retirement. 

You’re likely to have some big medical bills or need long-term care at some point later in life. What will you do then? For most people, this happens at the end of their life, and it could require a significant drawdown of assets to pay for that. Isn’t that why you built up your nest egg in the first place to pay for this unexpected thing that we call life? 

In my experience, I find that most of my clients who have passed on make it to the end of their life with plenty left over to pass on to their kids, because they didn’t spend as much as they could have in retirement. 

I have a client who will be 92 this year. She lives in assisted living and it’s expensive. She has had to increase her withdrawals over the last few years to pay for this expensive care. But guess what? She sold her house when she needed to move into assisted living, and that provided more than enough resources for her to pay for her increase in living expenses. She hardly spends money anymore because she’s not traveling and most of her other expenses are minimal. She’s in no danger of running out of money in retirement even if she quadrupled what she’s taking out in retirement. 

The research from Morningstar recognizes this stating: “While fixed withdrawal strategies produce stable and predictable cash flow, they do come with inherent risks. “If the starting withdrawal is too low and the portfolio outperforms expectations, the retiree will leave behind a large sum, which may not be a goal,”

“If the initial withdrawal is too high, the retiree will consume too much too early and risk running out prematurely and/or having to engage in dramatic belt-tightening later in life.”

Instead, flexible strategies whose withdrawal rates change on a yearly basis may be ideal for helping you reach your goals in retirement without outliving your money. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: The New 3.3% Rule For Retirement

So far this week, I’ve been talking about how new research from Morningstar may alter recommendations for a safe withdrawal rate in retirement from 4% down to 3.3%. A number of assumptions about future returns for stocks and bonds is the primary driver for that change, so  today, I’m talking about 4 reasons why the 4% rule for retirement withdrawals still works. 

#1 - the 4% rule still works if you can be flexible with withdrawals. What I mean by this is that you can reduce or stop your withdrawals all together from your portfolio in a market downturn. This often requires cash reserves of at least 12-18 months and some other income to support your lifestyle and expenses - like social security. But if you can be flexible with your withdrawals in retirement, and cut back on travel or big purchases when your portfolio is having a year of lean or declining returns, that should allow you to support a higher withdrawal rate. 

The 2nd scenario where a higher withdrawal rate is still sustainable is if returns are better than expected and inflation calms down. The 3.3% withdrawal rule assumes some fairly pessimistic returns for stocks and bonds, but if that doesn’t materialize and you can still achieve average returns in the mid single digits - say 6-7%, you could easily support a withdrawal rate closer to 4%. 

The 3rd reason why a higher withdrawal rate still works is the 3.3% rule for withdrawals in retirement assumes you need your money to last for 30 years. We don’t know how long we’re going to live, but if you retire closer to 70, you’re likely to only need your money to last for 15-20 years in retirement, not 30. Spending a decade less in your retirement years, means your portfolio can support a higher withdrawal rate in retirement without you worrying about running out of money.

And the last reason why you can probably sustain a higher withdrawal rate in retirement is research that says your spending will go down anyways as you move through retirement, which challenges the baseline assumption that’s built into the withdrawal rate analysis, which is that your spending will increase every year at the rate of inflation. Chances are, it won’t. I actually dedicated an entire week to this topic of reduced spending in retirement, so if you want to hear more about that, check out episodes 1051-1057, published the week of August 30, 2021. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

Today, I’m talking about the forward-looking assumptions that are driving this change from a 4% safe withdrawal rate in retirement to a 3.3% withdrawal rate. 

Here’s why according to Christine Benz, the director of personal finance and retirement planning at Morningstar and a co-author of the new research on the 3.3% rule:

“Retirees have enjoyed a “trifecta” of positive market developments over the past several decades…Low inflation, low bond yields (which have boosted bond prices) and strong stock returns have helped buoy investment portfolios and safe withdrawal rates,” she said.

The dynamic has perhaps lulled near-retirees into a false sense of security, Benz said.

Bonds are “highly unlikely to enjoy strong gains over the next 30 years,” and high stock prices are likely to fall as they revert to the average, according to the report. Inflation is also an issue, but the research anticipates that inflation will moderate and won’t be a huge problem over the course of a 30-year retirement. 

And this is where the research must be taken with a grain of salt. They’re trying to project likely return scenarios out over a 30+ year retirement. Plenty of stocks are overvalued at the moment, but there are still plenty of high quality stocks that are fairly valued, or even under-valued. And income and total return from bonds may improve over time as the interest rate climate changes. 

Are their assumptions realistic? I think so, but the 4% withdrawal rule also assumes moderate returns and has held up well under back tested scenarios under a variety of stock and bond market conditions. Even back tested in the 1970s where we had dismal stock returns and high inflation, you still didn’t run out of money if you retired during that time. 

Will you be more likely to never outlive your retirement savings if you adopt the 3.3% rule, compared to the 4% rule? No question! But you may also unnecessarily restrict your spending based on overly pessimistic assumptions. 

So tomorrow, I’m going to talk more about when and why a higher 4% withdrawal rule still works in retirement. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: The New 3.3% Rule For Retirement

Over the last couple days, I’ve been talking about the 4% rule, which is a short-hand rule of thumb that helps you calculate how much of your portfolio you can safely withdraw in retirement without running out of money. If you missed the earlier episodes this week, I encourage you to go back and listen to those so you can better understand where I’m going with explaining why the rule is now changing. 

Morningstar recently came out with some new research that recommends the 4% rule be revised downward to a 3.3% withdrawal rate in retirement? Today, I’ve diving into the rationale for the change. 

“Using forward-looking estimates for investment performance and inflation, they found that a 50% stock/50% bond portfolio should support a starting fixed real withdrawal rate of about 3.3% per year, assuming fixed real withdrawals over a 30-year time horizon and a 90% probability of success. This is because bond yields are low and stock valuations are high.” https://www.planadviser.com/3-3-withdrawal-rule-might-sustainable-retirees-going-forward/. 

Let’s break this down a little more, starting with the 90% chance of success. That means that running many simulations, using these assumptions, you made it through a 30 year retirement without running out of money if you started with a 3.3% withdrawal rate in retirement. That amount will increase every year for inflation so you can maintain your standard of living. 

Next we need to look at the portfolio assumptions. A portfolio that is invested 50% stocks and 50% bonds and cash is going to have a specific return and risk profile and there are a number of assumptions that need to be made about the range of possible future returns based on the allocation of the portfolio. 

And that’s why the 4% rule is changing to a 3.3% rule, because the assumptions for the returns on that 50/50 stock and bond mix are more pessimistic going forward because of higher stock valuations and lower projected returns on bonds. 

But keep in mind, these are forward-looking assumptions, and tomorrow we’ll dive more into these assumptions about future stock and bond returns that are bringing the safe withdrawal rate down to 3.3%. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

----------

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>>> Visit the podcast page: https://truenorthra.com/podcast/ 

----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: The New 3.3% Rule For Retirement.

Today, I’m explaining the concept of the 4% rule to create a foundation for what we’ll be talking about for the rest of this week, which is new research out from Morningstar that recommends the 4% rule be lowered to 3.3% withdrawal amount for retirement. 

The 4% Rule is a short-hand rule of thumb that helps you calculate how much of your portfolio you can safely withdraw in retirement without running out of money.

If you apply the 4% rule to your retirement savings, you would take your portfolio value and multiply that amount by 4%...so if you get to retirement with $1 million saved, and multiply that $1million by 4%, you get $40,000. So according to the 4% rule, you can withdraw $40,000 from your portfolio in year 1 of retirement, then increase that withdrawal amount for inflation each year without worrying too much about running out of money.

4% is considered a safe withdrawal rate that has been around for over 25 years and is backed by some well-documented research. 

An important question to consider is: Can you rely on the 4% rule? Is this actually a reliable rule of thumb for planning for your retirement? 

The short answer is that it does work well...sometimes. The long answer is that retirement is too  complex to rely on a rule of thumb - taxes, inflation, your returns in retirement vary widely from year to year, and you may be unlucky enough to retire in the midst of a big stock market downturn - these are all circumstances that will make the 4% rule less useful or blow it out of the water all together. 

And that’s part of the reason for the downward revision to the rule, that I’ll talk more about tomorrow. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

----------

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>>> Visit the podcast page: https://truenorthra.com/podcast/ 

----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

Welcome to a new week here on the Retirement Quick Tips podcast. I’m your host Ashley Micciche, co-owner of True North Retirement Advisors, an independent financial advisory practice managing $340 million in client assets. I’m a Chartered Retirement Planning Counselor, and I started this podcast because I love helping people just like you gain clarity and make a plan for the retirement you envision. 

The theme this week on the podcast is: The New 3.3% Rule For Retirement

The 4% Rule is a short-hand rule of thumb that helps you calculate how much of your portfolio you can safely withdraw in retirement without running out of money.

It was a concept originally developed by financial advisor Bill Bergen over 25 years ago, and has been widely used since as a quick and easy way to ensure your portfolio withdrawals in retirement remain sustainable. The fact that the 4% rule has held up over a quarter century now as a way to determine a safe withdrawal rate, shows that even though this rule has some flaws it is still relevant and useful today.

However, new research from Morningstar suggests that the 4% rule for portfolio withdrawals in retirement should be adjusted down to 3.3%. 

So this week on the podcast, I’ll talk about why Morningstar is suggesting a lower withdrawal rate, the new assumptions that are built into this new recommendation, in what circumstances the 4% rule will still work, and why flexibility is key to ensuring you don’t outlive your retirement savings…no matter which withdrawal rate you go with.

I hope what I have to share with you this week will help you make smart and thoughtful decisions with your retirement. And while I am careful to not lead you astray, personal finance is not an exact science. There is no one-size-fits-all solution for everyone, so I encourage you to disregard anything I say that may not be helpful for you, and to consult your own financial, tax, and legal advisors regarding your own individual situation. 

That’s it for today. Thanks for listening! My name is Ashley Micciche...and this is the Retirement Quick Tips podcast.

----------

>>> Subscribe on Apple Podcasts: https://apple.co/2DI2LSP

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>>> Visit the podcast page: https://truenorthra.com/podcast/ 

----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

It’s Sunday, which means...it’s recap time here on the Retirement Quick Tips Podcast

This week the theme was: 5 Behaviors of Emotional Investors That Lead To Ruin

In case you missed any episodes, here’s what we covered this week:

The most important takeaway from this week is…by knowing where biases in our thinking and how we’re wired can influence (often in some pretty damaging ways) how we make decisions, we’ll be better equipped to make more rational and less emotionally-driven decisions. 

Tomorrow, come on back, because we’re starting a brand new theme: The new 3.3% Rule for retirement. 4% of your portfolio has long been the rule-of-thumb standard withdrawal rate for retirees, but new research from Morningstar lowers that withdrawal rate to 3.3% and next week, I’ll explain why.

Thank you so much for listening this week! If this podcast is valuable for you (and hopefully it is otherwise you wouldn’t be listening), please share the show with a friend, a neighbor, your brother, or co-worker who is getting close to retirement. Just go to your favorite podcasting app, hit the share icon, then text or email the show link to someone you know who is eyeing retirement. 

Thanks for sharing the love and spreading the word. I hope you have a blessed Sunday. My name is Ashley Micciche, this is the Retirement Quick Tips Podcast.

----------

>>> Subscribe on Apple Podcasts: https://apple.co/2DI2LSP

>>> Subscribe on Amazon Alexa: https://amzn.to/2xRKrCs

>>> Visit the podcast page: https://truenorthra.com/podcast/ 

----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: 5 Behaviors of Emotional Investors That Lead To Ruin

Today, I’m talking about Loss Aversion.

Essentially what this means is that the pain of loss is felt more strongly than gains. In fact, the 2 don’t even compare. For most of us, the pain of losing $1,000 far worse than the happiness we feel if we gain $1,000.

In more precise terms, research shows that the pain of loss is twice as bad as the happiness we feel when we gain something by the same amount.

The applications to money are far-reaching. Many of us are too scared of losing and want to avoid the pain of loss, so we might keep too much in cash, or not be invested in stocks as much as we should.

Where loss aversion is really problematic is when we are in the midst of a downturn in the stock market. When you looked at your January investment account statement and you saw that you were down 8% or that you lost $100,000 in just one month, you probably didn’t like it. Or how about some of these headlines from last month: 

• Barron’s - The Stock Market Just Suffered Its Worst Week Since 2020
• Market Watch - Is it time to bail out of the stock market? Wild price swings are shaking the resolve of some investors.
• NY Times - Stock Markets Off to Worst Start Since 2016 as Fed Fights Inflation
• At least 7 signs show how the stock market is breaking down - also from MarketWatch

If your left eye just started twitching, congratulations, you’re human, and you too can fall victim to loss aversion if you let these headlines spook you into abandoning your long-term investment strategy. 

Think about this too…there was probably a month within the last couple of years where you had a gain of the same amount - 8% or $100,000 in just one month. Your reaction, I’m guessing was much more muted…”hmmm, that’s nice”

And this strong aversion to loss and feeling the pain can cause us to sell our investments at the worst possible time and abandon our long-term financial plan.

So what can you do about it? Well, one common sense, easy way you can avoid falling victim to loss aversion is simply to look at your investments less often. The more often you look, the more likely you are to see a loss in a given day, week, or month. But if you only look at your investments every quarter or even once a year, those results smooth out and normalize. Some people can handle looking every day or week…others would be better off just looking every quarter or just twice a year, so if your temperament skews more toward loss aversion, then make sure you own quality investments and look as infrequently as you can stand it, while still keeping reasonable tabs on your investments. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

----------

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>>> Visit the podcast page: https://truenorthra.com/podcast/ 

----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance